The analysis of the relationship between themoney mass Ì2 and theactual inflation level from June 1992 to December 1996 has allowed to form thefollowing dependence:

πt = aπt-1 +bmt-6,t-1+ εt,

where πt is theinflation in the month T, mt-1,t-6 is the average rate of growth of themoney mass for the precedentsix months, εt is the random variable reflecting theinfluence of the inflation ewxpectations and the effect of the non-monetaryfactors. As for the regression parameters the following estimates wereobtained: a = 0.7394,b = 0.2771. The multipleregression factor is as follows: R2 = 0.879, the valuesx of the t‑statistics are 11,12 for thea parameter and 3,61 forthe b parameter.

9 Of course, to interprete the shifts of the actual data from theestimates of the retro-prognosis, one needs to understand that these shiftsinclude not only the errors resulting from the undue account for the demand forthe money but also the errors relative to the modelling of the lags structure.

10 E.g., on 9 April 1996, during the hearings in the State Duma onthe issues of the socio-economic policy, T. Kariagina, economic counselor ofG. Ziuganov, said literally the following, “It should be said also to thebusiness people that everybody who is today even cheating, deceiving, evadestax paying, but is really a patriot of Russia, also a State supporter bynature, should not be afraid” (the communist coming to power.

11 Ye. Yasin, Minister of economics, explained the tax crisis underthe fierce electoral struggle and uncertain resulrts of it as follows, “Some donot pay because they wait for theirs to come. Other do not want to create thefinancial basis for the communist if they come to poower.”

12 To a certain extent, this is explained by the purely technicalcondition: the order of accountancy for the so-called “final turnovers” of theBudget supposes to relate a share of the incomes coming in the first ten daysof December to the December incomes. A certain role is played by the seasonalcharacter of the tax ionflows showing itself in a certain undereestimate,compared with the actual, of the advance settlements in profit, the lowactivity in the external trade at the beginning of the year, and thesignificant number of the days off.

13 A certain role here could have been played by the changes in thefiscal laws. In particular, on 1 January 1996, certain alterations of thefiscal legislation promulgated in 1995 took force: the tax on the excess of thelabor remuneration over the normalized value and the special tax wereabolished. According to our estimates, these changes were to reduce the taxinflows by 0.6% to 0.7% of the Gdp. Some other measures, e.g., relative to thesimplified system of taxation and accountancy for the small businesses,changes of the VAT privileges list, could not have a great effect on the taxinflow.

14 The actual situation was a bit more complex. The pre-electionsGovernment, which had characteristic qualities of a coalition, included certainpoliticians hoping (at least at the beginning) to save their offices even underanother President. especially as such signals from G. Ziuganov and his closestfellow-fighters were obvious. Nevertheless, soon, it became clear enough thatsuch a “soft” transformation of the regime would be impossible in any way. Forthe one hand, when the leading team of the CPRF outlined itself more clearly,the absence of offices inside it for the representative of the acting executivepower became distinct enough. For the other hand, the potential“collaborationists” from the active Cabinet had no practical possibilities tooinfluence the economic policy fully controlled by the Prime Ministar and hiseconomic team having no chances for the political survival in the event ofvictory of the opposition at the elections.

15 See the detailed validation of this conclusion inAppendix 1.

16 When the State securities are purchased by commercial banks, thegrowth of the money mass is also possible in the event their excess reserves,and, hence, the money multiplier, reduce.

17 The arcicle (Why voting is good for you // The Economist,27.08.1994) gives a comparative study of 13 economic reforms in differentcoutries and underlines that the success of a reform is independent of theState structure. Nothing proves that reforms are more difficult to implementfor democratic copuntries. Nevertheless, the decisive factor is that thepolitical regime must be strong enough for the success of the reforms becausethey require unpopular measures affecting the interests of different layers ofsociety.

18 It should be noted that in such situation the Russian executivepower acted following the logic of a “weak dictator” forced, to hold his power,to balance constantly between the influential groups of interests. (See formore detail: Alesina A. Political Models of Macroeconomic Policy and FiscalReform. Washington: The World Bank, 1992. P. 14-15).

19 In particular, indicative are the reductions of the expenditureson the national defense and law enforcement to 2,4% of the GDP, on the servicesto the national economy to 1,19% of the GDP, and on the aid to other levels ofpower to 0,20% of the GDP.

20 The estimated values of the secondary deficit, taking intoaccount the expenses on the servicing of all the kinds of State securities inwhole for 1996 are shown in Table 1.10.

21 (Cukerman A., Edwards S., Tabellini G. Seigniorage and PoliticalInstability // The American Economic Review, Vol. 82, 1992, pp. 537-555.) givesthe theoretical validation and empyrical confirmation of the fact that thepolitical instability and polarization of the political platforms of the maincompeting parties brings to the rejection of the fiscal reform in favor of themonetary emission, increasing the sthare of the seigneurage. The analogybetween the above model and the situation of the Russian economy of 1996 isobvious.

22 The gap between the rates of the money market and the rates ofcrediting for the real sector enterprises is determined, mainly, by the risk ofnon-return of the credits which are extremely high due to the absense of aneffective legal system of the contracts enforcement in the Russian economy. Asa result, the premium for risk in included in the credits cost and the interestretes grow to practically prohibiting values.

23 Within the period between 1 January 1994 and 1 January 1996, thevalue of the interior debt, expressed in shares of the GDP, reduced more thasn2‑fold, coming to11.4% of the GDP. This is explained by the relatively faster depreciation ofthe Government’sindebtedness for direct credits compared with the growth of the volume of theloans from the financial market (see Tables 1.5, 1.10).

24 The main purposes of the Commission include: control of thetimeliness and fullness of the taxes and other duties payment; development ofthe measures to ensure their collection in full amount; ensure the legalcharacter and efficient activity of the fiscal and custom bodies, tax policeincluded; and control over the timely and goal-oriented use of the FederalBudget and State out-budget funds assets.

25 In such event, a starting dealer is entitled to sell itssecurities to the Central Bank with their further redemption, while the CentralBank fixes the repurchase in the annual percent and the limits for suchtransactions.

26 In accordance with the Standard & Poors Corp. rating(BB–), the borrowingprice for the Russian securities was estimated by 1.5 to 2.5 percentager pointshigher.

32 Of course, the countries having the relevant legislativelimitations are exceptions. E.g., Estonia, whose Constitution prohibitspromulgating a budget with deficit.

33 The growth of the share of expenditures on the national economyin 1992, and its sharp reduction in 1993 are explained, as noted before, inmany aspects, by the growth of the real exchange rate of the Ruble andreduction of the accompanying estimate of the expenditures covered by externalcredits.

34 The social expenditures of enterprises include the cost ofsupport of the living facilities and utilities which, after transfer of theliving facilities to municipal bodies, are to be entered in the item ofexpenditures on national economy, and on support of the education, publichealth, and culture institutions, entered in the social expendituressection.

39 From this viewpoint, for example, the request to “increase theamount of money in the national economy up to the level of the developedstates” formulated by certain communist deputies during the budget discussionin the State Duma in November 1996 was characteristic.

40 See IET Review “Russian Economy in First Half of 1996. Trends andOutlooks”

41 According to IMF, the GDP was to amount to Rbl. 3425 trln. at thereal GDP growth by 4% and the annual inflation rate 12%.

42 Taking into account the tax payments collected in January 1997,amounting to 5.8% of the GDP, our forecast seems optimistic.

43 In general, the dependence looks as follows:

pt = a1pt-1 +a2mt-1,t-24,

where pt is theconsumer prices growth index for the week t recalculated by months,pt-1 is the prices index growth for the previous week,mt-1,t-24 is the average geometrical of the distributed by weeks monthlygrowth rates of the monetary mass M2, a1, a2are the regression factors. The free term wasexcluded from the equation because this is consistent with the theoreticalnotions on the character of the dependence under study and because of itsstatistical insignificance (after the exclusion of the free term of theregression equation, the value R2 changed insignificantly). The evaluations of the regressionparameters, obtained accounting for the auto-correlation elimination in theremainders are: a1 = 0.873and a2 = 0.255. The period of influenceof growth of Ì2,equal to 24 weeks, was obtained as a result of selection from the dependenciesyielding the greatest closeness indexes (R2) for different terms (from 1 to 55weeks). The normalized multiple determination factor R2 = 0.70. The value of the t-statisticsfor the parameter a1 equals 16.39, for a2 it equals1.86, which indicates their statistical significance at the level93%.

44 The estimate of the regressional dependence between theaggregated profitabilities, the leading, smoothened by the nonlocalized medianrates of inflation, and the rates of real issuing of the GKOs yields thefollowing results:

where rt is the nominal aggregated netprofitability of the GKOs (%) in monthly terms during the week t, xt,t+8 is the average rate of the realissuing of the GKOs (%) in monthly terms within the eight following weeks,πt,t+8 is the monthly rate of the consumer prices growth index (%) forthe same period of time. Between the parentheses are the values of thet-statistics for the relevant parameters of the model; the multiple regressionfactor R2 equals 0.43 (theregression was constructed by the 90‑week observations for1995-96).